1. CONTINUOUS AFS REVIEW CONTRIBUTING TO SUSTAINABLE SERVICE DELIVERY Institute of Municipal Finance Officers & Related Professions

2. Introduction > Section 166 (2) An audit committee is an independent advisory body which must— advise the municipal council, the political office-bearers, the accounting officer and the Management staff of the municipality, the accounting officer and the management staff, on matters relating to—internal financial control and internal audits; risk management; accounting policies; the adequacy, reliability and accuracy of financial reporting and information; (b)review the annual financial statements to provide the council of the municipality, with an authoritative and credible view of the financial position of the municipality, its efficiency and effectiveness and its overall level of compliance with this Act. Institute of Municipal Finance Officers & Related Professions

3. Purpose of performing continuous FS * To provide management and audit committee with reasonable assurance that internal control system in terms of preparation annual financial statements are adequate and effective and that they are in accordance with applicable laws, regulations, circulars and Council policies. * Determining the reliability and accuracy of financial information and disclosures as reflected on the Financial Statements. Institute of Municipal Finance Officers & Related Professions

4. How often should the review of financial statements take place? * Annually as indicated by section 166(2b) of MFMA, * Its recommended perform an quarterly review of financial statements Institute of Municipal Finance Officers & Related Professions

5. Benefits of quarterly financial statements review? There lot of benefits for performing quarterly review of the financial statements e.g ELM moved from material misstatements to no material misstatements Institute of Municipal Finance Officers & Related Professions Description201320142015 Material misstatementsR400 000 000R300 000 000R0

6. Reasons for misstatements * Lack of proper review of the financial statements * Value added by the audit committees in the review of the financial statements prior to submission for audit purposes not being evident * Inadequate skills to comprehend the financial reporting standards and lack of regular update on the changes to the reporting standards *No proper disciplines of preparing monthly financial statements with full disclosures and notes * Inadequate systems of filing supporting documents to the financial statements * Inadequate monitoring where consultants are used to prepare financial statements and management not taking accountability for these financial statements Institute of Municipal Finance Officers & Related Professions

7. 3. How do we perform the continuous review of the financial statements? The following approach might be adopted: Review arithmetical accuracy and consistency of financial statements; Verify if appropriate accounting standards have been applied; Evaluating whether all accounting policies are appropriate in terms of the applicable financial reporting framework and are applied consistently; Evaluating the information systems used to record and report financial information; Evaluating the reasonableness of accounting estimates and judgments made by management; Performing analyses to identify anomalies in reported data; Determining whether all financial statement disclosures are adequate; and Conduct analysis of trends and other financial ratios Institute of Municipal Finance Officers & Related Professions

8. Focus or scope? The scope of the review should includes but is not limited to the following components within the review of financial statements: * Statement of financial position * Statement of financial performance * Cash flow statement * Statement of changes in net assets * Presentation of budget information in the financial statements * Notes to mid-year financial statements * Accounting policies to mid-year financial statements * Appendixes to financial statements Institute of Municipal Finance Officers & Related Professions

9. Planned Financial Audits on quarterly basis Review of the adequacy and effectiveness of controls relating to the completeness, accuracy and validity of procurement (Procure to Pay process). Review the adequacy and effectiveness of inventory management controls, including consumables. Review of the adequacy and effectiveness of controls around payroll transactions to ensure the accuracy, validity and completeness thereof. Evaluate the effectiveness and adequacy of controls around Asset Management to ensure the accuracy, completeness, validity and safeguarding of assets. Review of the adequacy and effectiveness of controls relating to completeness, accuracy and validity of debtors and revenue. Review the adequacy and effectiveness of processes and procedures around the compilation and maintenance of the valuation roll. ers & Related Professions

10. Role of Internal Audit (IPPF 2050) Internal Audit Services co-ordinates its work with other assurance providers. The Auditor-General as external auditors are consulted in determining and discussing the activities of internal and external audit in order to minimise duplication of audit effort. This may involve:  periodic meetings to discuss the planned activities;  the exchange of audit workpapers including systems documentation;  the exchange of management letters and/or internal audit reports; and  the forming of joint teams where possible. To the extent that it is necessary, relationships with regulatory bodies must be maintained by internal audit. Institute of Municipal Finance Officers & Related Professions

11. Financial Statement Close Processes (“FSCP”) * This Audit looks at the general financial discipline within an organisation Key Control account reconciliations. Significant judgmental areas and key risk areas such as provisions and suspense accounts. All transactions in a municipality are recorded in general ledger. All input to the financial ledger is complete, accurate, timely and valid. All journals within the financial ledger are authorised and documented. All journals are recorded in the correct accounting period Institute of Municipal Finance Officers & Related Professions

12. Quarterly FS/AFS Quality Assurance The internal audit function, while having no direct responsibility in the preparation of financial statements, can provide valuable assistance, for example, in providing advice regarding appropriate accounting treatments for certain transactions. Internal audit can also assist by reviewing the financial statements, or sections thereof, to ensure they fairly represent transactions or disclosures, and comply with prescribed requirements. Institute of Municipal Finance Officers & Related Professions

13. Quarterly FS/AFS Quality Assurance cont. Internal audit should also assist with the quality assurance of the financial statements and may complement and assist the external audit process. There should be discussions between internal and external audit regarding the assistance to be provided by internal audit.  Perform the GRAP disclosure check list to advice management on compliance with GRAP standards in the presentation of the financial statement.  Review controls used by management in the preparation of accounting records(financial discipline review) such as general ledger, asset register, trial balance, bank reconciliations, creditors reconciliations, identifying and confirming related party transactions and other supporting documentations used in the preparation of the financial statement to ensure their timely availability, completeness, reliability and accuracy of information.  Advice management on whether all components of financial statement has been prepared, these include, ensuring that the Statement of Financial position, statement of financial performance, cash flow statement and statement of changes in equity are available with sufficient supporting information to support them. Institute of Municipal Finance Officers & Related Professions

14. Stakeholders for the continuous review of financial statements – Circular 63 Management –all user department must review their supporting schedules, recons and other financial information before submitting to finance department for the preparation of financial statements -preparing and reviewing of the financial statements by finance department/ CFO’s office Internal Audit- performing high level review of financial statements Audit Committee-review the annual financial statements to provide the council of the municipality, with an authoritative and credible view of the financial position of the municipality, its efficiency and effectiveness and its overall level of compliance with this Act. Council- Cognizance Institute of Municipal Finance Officers & Related Professions

15. Stakeholders for the continuous review cont… financial statements – Circular 63 The following approach might be adopted: Internal Audit- performing high level review of financial statements Audit Committee-review the annual financial statements to provide the council of the municipality, with an authoritative and credible view of the financial position of the municipality, its efficiency and effectiveness and its overall level of compliance with this Act. Council. Institute of Municipal Finance Officers & Related Professions

16. Linkage to suistanable service delivery Direct link/contribution to sustainable service delivery Grants -reviewing grant schedule notes might assist to see if grant is used for what is intended for. -The expenses regarding the grant should be linked with Grant revenue Presentation of budget information in the financial statements -reviewing the budget on the financial statements might help to see if money is spent for what is allocated for. -overspending and overspending on budget information statement might show an impact on sustainable service delivery Conduct analysis of trends and other financial ratios. -liquidity and solvency ratio might raise uncertainty to sustainable service delivery Institute of Municipal Finance Officers & Related Professions

17. Linkage to suistanable service delivery cont. Indirect link/contribution to sustainable service delivery contingent liabilities -increase in contingent liabilities regarding claims for damaged caused by pothole might indicate lack of sustainable service delivery Institute of Municipal Finance Officers & Related Professions

18. Conclusion Continuous review of financial statements contributes to sustainable service delivery. Institute of Municipal Finance Officers & Related Professions

19. Thank You! Institute of Municipal Finance Officers & Related Professions